What's $55m between friends?

Flash supplier OCZ does not yet know its sales for the last two quarters nor whether it's made a profit or a loss, and had just $2 million net cash left in the bank at the end of 2012. It's an omni-shambles and it could get tossed out of Nasdaq.

The memory chip company cannot make sense of its own financial records and is operating blind, with threatened stock-exchange ejection, until it gets its business reporting into gear.

This is how bad it is: in September OCZ, led by Ryan Petersen, stated that the preliminary revenue for its second fiscal quarter, which ended on 31 August, would be between $110m and $120m.

Then Petersen quit and the numbers went haywire. New CEO Ralph Schmitt told the SEC that his company would file its second quarter numbers late and revenue would be significantly lower than $110m thanks to customer incentive programmes reducing the tallies.

In mid-January OCZ was told by Nasdaq to file the quarterly results or be ejected by 28 February, and it had to prove it could do this by submitting an update plan by 1 February. Its bank, Wells Fargo Capital Finance, reduced the company's credit facility from $35m to $20m.

Schmitt said many low-end products had been canned and OCZ's inventory was cut to less than $50m.

On the final day of January, the company announced that the second and third quarter revenues will both be between $65m and $85m. That's a $55m difference at worst from a second-quarter high-point of $120m. OCZ said in a statement: "The revenue levels of our two unreported quarters were lower than previous revenue results due to significant discounting and the reduction of channel inventory in Q3."

For these second and third quarters Schmitt doesn't know to the nearest $40m how much OCZ earned.

The customer incentive programme liabilities and inventory run-down charges must be a nightmare of fuzziness. The latter are estimated to be $15m in the second quarter and $30m in the third; that's $45m of assets that are just vanishing.

Some 80 per cent of the low-end products have been canned, along with other products; 150 in total have hit the scrap heap. There was $9m cash in the bank at the end of December and $7m in bank debt, giving $2m net cash, trade receivables of $35m and trade payables of $30m. This is a business tottering on a knife-edge.

Schmitt said OCZ can build a profitable business in 2014 due to "a new revenue baseline that will be lower than previous reported revenues due to the impact of the company's refined focus towards the mainstream and higher-end consumer SSD products, as well as addressing enterprise and OEM solid state storage solutions".

Stifel Nicolaus analyst Aaron Rakers noted there was no announcement of a filing of the required Nasdaq update plan today. Unless that is handed in on time, OCZ is out of Nasdaq and, as a result, getting bank credit will be much more difficult. Wells Fargo could wave goodbye and consign OCZ to the scrap heap in a forced asset sale. This is about as bad as it gets, but OCZ's survival is still possible. ®